What are green mortgages and how do they work?

Green mortgages are loans that offer better terms to those who buy energy-efficient homes or make eco-friendly home improvements. These terms can include lower interest rates, reduced fees and cashback.

In this article:

How do green mortgages work?

The way green mortgages work varies between property types, mortgage lenders and mortgage products. However, the core value remains the same: borrowers are rewarded for making environmentally conscious decisions.

There are 3 main types of incentives lenders offers through green mortgages, these are:

How can you get a green mortgage?

Each lender will have their own criteria and own specific incentive. However, in all circumstances, eligibility is based on the current, or future, energy efficiency of a property.

Most green mortgages are only available on houses which have an energy performance certificate (EPC) rating of A or B, or 81 and above. Some green mortgages are available if you’re making home improvements to increase the EPC rating to a B or higher.

You may also be able to get green mortgages for eco-conscious new-builds when buying directly from the developer or builder.

How do you apply for a green mortgage

The application process for a green mortgage is mostly the same as a standard mortgage. Learn more about the mortgage application process. For green mortgages the biggest difference will be for those wanting to use the green mortgage to make energy-efficiency improvements, where it’s likely you will have to provide a plan to your mortgage provider of how these improvements will be made.

What are the key benefits to green mortgages?

There are several benefits to green mortgages for both buyers and the environment:

What lenders offer green mortgages?

Although green mortgages aren’t widely available yet, it’s likely they will become more popular in the years to come. In recent years, the green mortgage market in the UK has seen substantial growth, expanding from 4 products in 2019 to 61 in 2024. This surge in availability reflects an increasing commitment by lenders to support environmentally-friendly housing.

Currently some of the biggest high street lenders, such as Barclays, Natwest and Nationwide have green mortgages available as well as some building societies.

What is offered by green mortgage providers?

Here's a snapshot of what some prominent UK banks and building societies offer in the realm of green mortgages:

Making the right choice

Choosing the best green mortgage depends on your specific needs and plans. If you're purchasing a new home, look for lenders that offer attractive initial rates and cashback. If you're planning renovations, prioritise those offering flexible borrowing for green improvements.

Knowing what different lenders offer can help you make an informed decision that aligns with both your financial goals and your commitment to sustainability.

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How can you make your home more energy efficient?

Your EPC not only shows you the energy rating of your home, however, it also shows ways improvements can be made. This will include things such as, improving the loft insulation, installing double or triple glazed windows and updating to a modern and more efficient boiler. You could also install solar panels as a way to generate your own energy,

Find more ways to make your home more energy efficient in our guide.

How much could it cost to boost your property's Energy efficiency?

Enhancing your property's energy efficiency can involve various upgrades, from better insulation to renewable energy installations. But what does that mean for your wallet? A 2022 report by mortgage broker Habito estimated that the cost of upgrading a house from an energy performance certificate (EPC) rating of D to a C could cost £6,155.

Cost estimates for different property types

One bedroom flats

Upgrading from an Energy Performance Certificate (EPC) rating of D to C typically costs around £3,653.

Small mid-terrace houses

Expect to invest approximately £6,400 to see similar improvements.

Larger detached homes

These may demand a more significant investment, often totaling around £12,540.

Factors Influencing Costs

For properties looking to elevate their EPC ratings from E to C, costs can range significantly from £7,500 to over £25,000. These variations depend largely on the upgrades you choose and the overall condition of your property.

Green mortgage FAQs

Can you get green mortgages for buy-to-let properties?

Yes, many of the lenders also offer green mortgages for buy-to-let and holiday let properties. Read our guide to buying a second home.

Can you get a green mortgage when remortgaging?

Yes, in most circumstances green mortgages are available to first-time buyers, home movers and remortgages, as long as the property meets the specified criteria.

Are green mortgages worth it?

One of the main benefits of a green mortgage is that they offer better interest rates. If this is your main reason for opting for a green mortgage, you should also consider alternative options as different providers may offer cheaper interest rates through other products. You should speak to a mortgage adviser if you are unsure.

What other incentives are there to improve the energy-efficient of a house?

The government offers various incentives and grants to improve a homes energy efficiency, such as the Boiler Upgrade Scheme and the Energy Company Obligation. You can find about these and more in our guide on how to make your home more energy efficient.

Understanding Government plans for energy-efficient lending

In response to the growing demand for sustainable living, the government has laid out a comprehensive plan to support energy-efficient improvements in homes and businesses. Beginning in late 2023, a substantial investment has been earmarked to transform the way energy is consumed and managed across the nation.

Key objectives of the plan

Investment highlights

The government has pledged to invest £12.6 billion by 2028, focusing on several pivotal programs aimed at enhancing energy efficiency:

1. Household support for heating upgrades: There will be financial assistance available for households to transition to energy-efficient heating systems, which are both cost-effective and environmentally friendly.

2. Grants for home improvements: Substantial grants will also be made available for vital home improvements, such as upgrading insulation. These measures will not only improve energy conservation but also help in lowering overall utility costs for homeowners.

Long-term impact

The overarching aim is to drive down energy consumption while fostering practices that are kinder to the environment. This comprehensive approach not only promises financial savings for individuals through reduced energy bills but also supports a national move towards a more sustainable future. Through these initiatives, the government hopes to set a benchmark in energy management that aligns both economic and environmental interests.